By way of background, the Bank of England holds £375 billion of gilts. The US Federal Reserve has been buying $85 billion of US bonds each month giving a holding at the end of 2013 of some $3.7 trillion.   The Fed is now reducing its monthly purchases by $10 billion to  $75 billion of US bonds a month from January 2014 in a process known as “tapering”.  This is still significant monetary easing in the USA but it marks a turning point.  Over time we can expect the monetary easing to stop completely and eventually reverse through reductions in the gilt and bond holdings and increases in interest rates.

There are a number of consequential effects that can be expected, some of which are likely to impact your business:

Interest rates on government debt will rise as these have been driven down by QE. This may have an impact on company borrowing costs and if so, will reduce company profitability. At the start of the Financial Crisis interest rates fell rapidly, with UK bank base rates moving from 5% in late 2008 to 0.5% in early 2009.  There is a good chance that once rates start to rise the increases will come quickly.
Pension liabilities will fall as they are calculated by reference to long-term interest rates. The interesting question will be what happens to assets held by pension schemes. To the extent the investment is in government bonds, prices are likely to fall leading to lower asset values. Investments in equities could rise as the economy recovers but this will be offset by higher interest costs. The other factor affecting equity prices is the multiple of earnings on which they trade – this is the big uncertainty. […]